Economic Review of Pakistan 2009

Economy of Pakistan in general

The economy of Pakistan is the 27th largest economy in the world in terms of purchasing power, and the 48th largest in absolute dollar terms. Pakistan has a semiindustriali ed economy, which mainly encompasses te!tiles, chemicals, food processing, agriculture and other industries. "rowth poles of Pakistan#s economy are situated along the $ndus %i&er with di&ersified economies of 'arachi and Pun(ab#s urban centers. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mi!ed le&els of foreign in&estment, and a costly, ongoing confrontation with neighboring $ndia.

The economy today

)ue to inflation and economic crisis worldwide, Pakistan#s economy reached a state of *alance of Payment crisis. +ince the beginning of 2,,8, Pakistan#s economic outlook has taken stagnation. +ecurity concerns stemming from the nation#s role in the -ar on Terror ha&e created great instability. .ombined with high global commodity prices, the dual impact has shocked Pakistan#s economy, with gaping trade deficits, high inflation and a crash in the &alue of the %upee, which has fallen from /,-0 1+) to o&er 8,-0 1+) in a few months. 2conomic re&iew of Pakistan has been focusing in recent times on how to deal with economic recession. The report by ministry of finance stated that the fiscal deficit target, 4.3 per cent of ")P and the current account deficit target of 4.5 per cent of ")P were achie&able. The report also shows some signs of impro&ement in the economic &ariables such as the stabili ation in inflation rate, a significant increase in the buildup of foreign e!change reser&es which reco&ered from a low of 63.4 billion on 7ctober 30, 2,,8 to 67.8 billion on 8pril 07, 2,,5. There were also some indication that the amount could be increased further, if the country continues to proceed on the track. 7ther &ariables showing economic re&iew of the country are as follows9

GDP (grand domestic product)

8s stated in the report the ")P will be in range of 2.4 per cent to 3.4 per cent. 8griculture ratio to ")P will be positi&e which is based upon anticipated high wheat crop and abo&e target growth of minor crops including a reasonably good outturn by the li&estock sub-sector. The go&ernment had set a target of 4.4 percent ")P growth for the fiscal year ending on :une 3,, after ha&ing achie&ed a re&ised 4.0 growth the pre&ious year. 8s the go&ernment has tried to consolidate the economy, the real cost has been that ")P growth has suffered.

Inflation
The ongoing global inflationary pressures continue to affect the economies of $ndia and Pakistan. )espite the di&ersified but integrated efforts of the go&ernment the country still faces a high double-digit inflation rate. The manipulators, weak regulatory bodies, poor e!ecution of laws and the withdrawal of subsidies were the main causes of high inflation ratios in the country. $t is e!pected that the a&erage inflation for the year ;2,,8-,5< as measured by the .P$ will be close to 2, per cent. $nflation has started to decline slowly and :ul-:an inflation was at 23.5= against 24.4 = during first si! months of the current fiscal year, although it was 8./= in the corresponding period last year. >ood inflation in first se&en months of current fiscal year came down to 25.8= while it was 02.4= last year but $nflation is still abo&e go&ernment?s target of 02=.

Sectors
Agriculture: The agriculture sector is likely to achie&e its growth target of 3.3 per cent for the current year. 8ccording to the report, all li&estock products witnessed an increase in prices and thus the target of 3.2 per cent would be achie&ed as the demand for li&estock products was growing at a phenomenal pace. @a(or crops, which account for up to 34 percent of agricultural &alue, posted growth of 7.7 percent compared with a negati&e growth of /.4 percent last year. anufacturing industry: $t is pro(ected that large-scale manufacturing ;A+@< ratios will be negati&e due to many local and international reasons. Aarge-scale manufacturing was estimated to ha&e contracted by 7.7 percent against an e!pansion of 4 percent the pre&ious year. The economic recession and cost of production has deficiently affected the A+@ growth. Ser!ice: The ser&ice sector showed some resilience in the current fiscal year. The banking and financial sectors of the country showed substantial growth which would contribute a positi&e impact on the economy in the near future.

Po!erty and unemployment

8nalysts say Pakistan#s low growth is tantamount to recession with annual population growth of more than 2 percent, and more than a third of its 0/, million people li&ing in po&erty. @oreo&er, the interest rate is cut by 0,, basis points to 04 percent in 8pril, in order to boost economic growth.

Stock market
$t seems that the stock e!changes of the country are on the road to reco&ery but their sustainability factor is still Buestionable. The reco&ery phase of the premier stock e!change after floor remo&al has been hopeful and an outstanding performance has made it one of the best performing markets of the world in 2,,5, as in the past si! weeks Pakistani capital market?s &alue has impro&ed by 2, per cent.

"oreign trade
Total 2!ports reached to 60,.534 billion showing an increase of 8.,2= mainly constituted of rice, chemicals and cement. $mports for se&en months reached to 620.//0 billion, an increase of 4.77=. @onthly e!ports for :anuary reached to 60.3/ billion while imports reached 62.428 billion making monthly deficit of 60.22 billion, an impro&ement from last year?s deficit of 62.,/4 billion. Come remittances for :anuary were 6/37 million showing a decline from )ecember?s massi&e 6/74 million, which was the highest le&el in last fi&e years. The aggregate remittances in first se&en months of fiscal year 2,,5 ha&e totaled to 64.277 and it has been one of the biggest sources after e!ports, to earn foreign e!change for bridging gap between foreign currency inflows and outflows.

#urrency e$change
Pakistani %upee has fallen has fallen from /,-0 1+) to o&er 8,-0 1+) in a few months. The rupee depreciation in the first Buarter has an impact of %s447 billion on the stock of public debt. The significance of this depreciation effect is highlighted by the fact that e&en though the stock of foreign currency debt has gone down in dollar terms by 64,, million, there has been an increase in rupee terms of %s404 billion in the first Buarter. The depreciation of the rupee against the dollar has been responsible for appro!imately // per cent of the total increase in public debt, as stated in a debt policy report submitted to the Dational 8ssembly. Public debt is estimated to cross %s7,530 billion by end :une 3,, up by 34 per cent from %s4,5,0 billion in 2,,7-,8.

#onclusion
The re&iew of economic situation for the fiscal year 2,,8-,5 can be a wakeup call for the policy makers. There is still much to be done and will depend on the go&ernment?s ability

to implement concrete measures in significant areas that directly tackle these faults in the economy.

"uture outlook
The economy has finally started to show signs of relati&e stability by achie&ing the first set of targets set by $nternational @onetary >und. 8ll signs are that domestic inflation would be difficult to tame gi&en relati&ely high non food and food items prices. The interest rates might go down in near future owing to tremendous pressure from business community pro&ided that in addition to high interest rates, slowing e!ports orders ha&e already made things worse for corporate. 2!change rate would remain &olatile in absence of any ma(or in&estments from abroad .ountry?s foreign e!change position would mainly depend on $@> as Pakistan has already approached $@> for 64.,, billion finance in addition to 67.4 billion stand by facility. >or a sustainable growth, the go&ernment needs to pursue the permanent reform processes and resist in slowing them for short-term political gains.
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